Portfolio Management Services (PMS) or Mutual Funds: The Best Investment Route
Posted on 17-Oct-2024
6 min read
-or-Mutual-Funds-The-Best-Investment-Route.png)
PMS investment and mutual funds can both beat the average rate of inflation. However, there are certain things that set these two apart. This guide by Shriram AMC explains it all.
Table of Content
PMS investment might be a very new topic to understand, especially if you are an amateur investor in India. You might have just made it through all your research on mutual funds and built your confidence to begin investing. And now comes PMS, a completely unknown term, adding to your confusion.
But worry not! We are here to clarify your doubts and make you investment savvy by the end of this guide.
The Indian financial landscape offers a plethora of investment options. Two prominent choices for investors are Mutual Funds (MFs) and Portfolio Management Services (PMS). But with so many options, a common question arises: should you invest in both PMS and mutual funds?
This blog will delve into both investment avenues, helping you understand their intricacies and decide if a combined approach suits your financial goals. Let’s dig in!
There are various types of mutual funds available in India, catering to different risk appetites and investment goals. Here's a quick glimpse:
While both mutual funds and PMS invest your money, they differ significantly in terms of:
Both PMS and mutual funds can outperform or underperform the market. Actively managed mutual funds aim to outperform a benchmark index by strategically buying and selling securities. Portfolio managers in PMS have more flexibility in their investment choices, potentially leading to higher returns, but also comes with greater risk. Remember, past performance is not a guarantee of future results. Both PMS and mutual funds involve inherent risks associated with the market and the specific securities chosen.
Yes, some financial advisors offer both PMS and mutual funds as investment options. However, it's crucial to ensure the advisor prioritizes your financial goals and recommends a suitable mix of both, avoiding any conflicts of interest. Ask the advisor to disclose any potential conflicts and how they will manage them. Consider seeking separate advisors for PMS and mutual funds if you have concerns or require specialized expertise in either area.
Beyond PMS and mutual funds, several other investment options can be explored depending on your risk appetite and financial goals. Here are a few examples:
But worry not! We are here to clarify your doubts and make you investment savvy by the end of this guide.
The Indian financial landscape offers a plethora of investment options. Two prominent choices for investors are Mutual Funds (MFs) and Portfolio Management Services (PMS). But with so many options, a common question arises: should you invest in both PMS and mutual funds?
This blog will delve into both investment avenues, helping you understand their intricacies and decide if a combined approach suits your financial goals. Let’s dig in!
What Are Mutual Funds?
Mutual funds are professionally managed investment vehicles that pool money from multiple investors. This money is then used by a fund manager to invest in stocks, bonds, or a combination of both, depending on the fund's objective. Mutual funds offer diversification, expert management, and ease of investment, making them a popular choice for investors of all experience levels.There are various types of mutual funds available in India, catering to different risk appetites and investment goals. Here's a quick glimpse:
- Equity Funds: Invest primarily in stocks, offering high growth potential but with higher risk.
- Debt Funds: Invest in fixed-income securities like bonds and debentures, offering stable returns with lower risk.
- Hybrid Funds: A mix of equity and debt, offering a balance between risk and return.
What Are Portfolio Management Services?
Portfolio Management Services (PMS) are personalized investment services offered by wealth management firms. A dedicated portfolio manager tailors an investment portfolio specifically to your risk profile, financial goals, and investment preferences. PMS invest directly in stocks, bonds, and other assets, offering greater flexibility compared to mutual funds.Types of Portfolio Management Services
In a broader sense, there are mainly two categories of PMS:- Discretionary PMS: This is where the investment manager has complete agency over making investment decisions for the client. The client isn’t involved in any part of the decision-making process.
- Non-Discretionary PMS: This is where the investment manager’s role is restricted to just advising the investment savvy client on securities and strategies to invest in. The client ultimately takes the final call on the investment.
- Aggressive Growth: Aims for high returns through investments in high-risk, high-growth potential assets.
- Income Generation: Focuses on generating regular income through investments in dividend-paying stocks and fixed-income instruments.
- Capital Preservation: Prioritizes capital protection by investing in low-risk assets like bonds and blue-chip stocks.
Key Differences between Mutual Funds and Portfolio Management Services
Now that we have covered both mutual funds (well, you already knew about this is great depth) and PMS, it’s time to look at their differences.While both mutual funds and PMS invest your money, they differ significantly in terms of:
| Mutual Funds | Parameters | PMS |
| Investment amount through SIP can be as low as Rs. 100 | Investment Minimum | Minimum amount should typically be Rs. 50 lakhs |
| Follow a pre-defined investment strategy | Customisation | High degree of customization |
| 0.5% to 2.5% | Fees | 2% to 2.5% |
| Managed by professional fund managers | Management | Has a dedicated portfolio manager for each client |
Factors to Consider Before Investing in PMS
Any investor worth their salt should know the ins and outs of PMS before jumping right in. Here are the factors you must consider before investing:- Investment Corpus: Portfolio Management Services are suitable for investors with a significant investible amount, as we have already seen in the table.
- Risk Appetite: PMS cater to a wider range of risk profiles, but investors should be comfortable with a more hands-on approach and a higher risk tolerance. This is because portfolio managers usually aggressively bet on different securities and sectors.
- Investment Expertise: PMS require a certain level of investment knowledge to understand the risks and complexities involved. As such, portfolio managers involved must also know the domain like the back of their hands.
- Costs: As we have seen in the previous section, Portfolio Management Services generally involve higher management fees than mutual funds. These fees can be fixed, variable or performance based.
Factors to Consider Before Investing in Mutual Funds
Some of the factors that you must consider before investing in mutual funds are as follows:- Investment Goals: Choose funds aligned with your financial goals, whether it's short-term wealth creation or long-term retirement planning.
- Risk Tolerance: Different mutual funds carry varying degrees of risk. Choose funds that suit your risk appetite.
- Investment Horizon: Consider how long you plan to stay invested. Mutual funds are generally suitable for long-term investment horizons. Though there are a few funds that can be well-suited for low-duration investors.
Final Words: Mutual Funds or PMS— What Should You Choose?
The decision to invest in PMS, mutual funds or both depends on your individual circumstances. There is no universal or one-size-fits-all rule. Not to make the decision for you, but you can use this as your load star while deciding what to invest in:- Invest in Mutual Funds If: You have a smaller corpus, prefer a simpler investment approach, and have a moderate risk appetite.
- Invest in PMS If: You have a large corpus, desire a customized portfolio, and have a higher risk tolerance and investment expertise.
- Consider Both If: You have a substantial corpus and want to diversify your investments. You can allocate a portion to a PMS for customization and remaining to mutual funds for broader market exposure and ease of management.
FAQs
Here are a few frequently asked questions about PMS and mutual funds:1. How do I choose a reputable portfolio manager for PMS services?
Choosing a portfolio manager for PMS requires careful consideration. Here are some key factors to evaluate:- Track Record: Look for a portfolio manager with a consistent track record of generating returns that meet or exceed their stated investment objectives.
- Experience: Investigate the manager's experience managing portfolios similar to your risk profile and investment goals.
- Fees and Investment Philosophy: Understand the fee structure of the PMS service, including management fees, performance fees (if applicable), and any other charges. Align yourself with a manager whose investment philosophy aligns with your risk tolerance and return expectations.
- SEBI Registration: Ensure the portfolio manager and the PMS provider are registered with SEBI (Securities and Exchange Board of India) for legitimacy and regulatory compliance.
2. Are there any performance differences between PMS and mutual funds?
Both PMS and mutual funds can outperform or underperform the market. Actively managed mutual funds aim to outperform a benchmark index by strategically buying and selling securities. Portfolio managers in PMS have more flexibility in their investment choices, potentially leading to higher returns, but also comes with greater risk. Remember, past performance is not a guarantee of future results. Both PMS and mutual funds involve inherent risks associated with the market and the specific securities chosen.
3. Can I invest in both PMS and mutual funds through the same advisor?
Yes, some financial advisors offer both PMS and mutual funds as investment options. However, it's crucial to ensure the advisor prioritizes your financial goals and recommends a suitable mix of both, avoiding any conflicts of interest. Ask the advisor to disclose any potential conflicts and how they will manage them. Consider seeking separate advisors for PMS and mutual funds if you have concerns or require specialized expertise in either area.
4. What are some alternatives to consider besides PMS and mutual funds?
Beyond PMS and mutual funds, several other investment options can be explored depending on your risk appetite and financial goals. Here are a few examples:
- National Pension System (NPS): A long-term retirement savings scheme offering tax benefits and a mix of equity and debt exposure.
- Real Estate Investment Trusts (REITs): Invest in income-generating real estate assets with potential for capital appreciation.
- Peer-to-Peer (P2P) lending: Facilitate loans between individuals and businesses, potentially offering higher returns but with inherent risks.
Was this article helpful?
Registered Successfully
Your Feedback Saved Successfully
Previous
Explore Shriram Mutual fund
Shriram Flexi Cap Fund
Invest nowShriram ELSS Tax Saver Fund
Invest nowShriram Aggressive Hybrid Fund
Invest nowShriram Balanced Advantage Fund
Invest nowShriram Overnight Fund
Invest nowShriram Multi Asset Allocation Fund
Invest nowLove our blog posts?
Subscribe to get updates directly to your e-mail inbox
-or-Mutual-Funds-The-Best-Investment-Route.png)
